China economy

By Jonathan Fenby, Trusted Sources

Far from fading away, the anti-corruption campaign launched two years ago by China’s leader, Xi Jinping, is widening and has all the appearance of being seen by Xi and his colleagues as a regular instrument of governance.

It has, of course, involved getting rid of high-profile politicians such as the former security chief, Zhou Yongkang, and the maverick Bo Xilai, along with their associates. But, in keeping with Xi’s declared aim of going for both “flies” and “tigers”, it is also seen by the leadership as a means of cutting lower-level bad apples out of Communist Party.

What is intriguing is the question of whether Xi and his principal enforcer, Discipline Commission chief Wang Qishan, see it as a means of making the state sector more efficient. Read more

Zhou Xiaochan, China's central bank governorClearly, China’s interest rate cut on Friday was motivated by a desire to manage a flagging growth story. But the announcement also revealed a few sub-plots, which together may say more about Beijing’s mindset than the dominant narrative.

The first point, several analysts said, is that Beijing’s monetary easing may well have further to run, following the decision by the People’s Bank of China (PBoC) to cut its benchmark lending rate by 0.4 percentage points to 5.6 per cent, while cutting its deposit rate by 0.25 per cent to 2.75 per cent. Read more

By Xiao Qi, China Confidential

China’s shadow finance sector has become a global concern. The International Monetary Fund (IMF) and World Bank have both warned about the risks associated with the rapid build-up of assets within such an opaque sector, while central bankers now regularly reference Chinese shadow finance as a key potential risk to global economic stability.

But while concern over the lurking horrors in China’s financial shadows remains justified, regulatory actions mean that the systemic risks that they pose are finally starting to ebb. This is happening in spite of the fact that the overall scale of the shadow system is continuing to expand. Read more

Can China innovate its way out of a prolonged economic growth slowdown? Shaun Rein, managing director of the China Market Research Group, believes so. In his new book, “The End of Copycat China – The Rise of Creativity, Innovation and Individualism in Asia”, he argues that China will start innovating now because it has to – and that it didn’t before simply because it didn’t need to. That’s an interesting theory, but is he right?

Rein first does battle with common perceptions that the Chinese political system or culture limits its ability to innovate. It’s not because China is a communist-led country with limited individual freedom, that it does not come up with corporate inventions, he says. Read more

By Louis Kuijs of RBS

China’s economic growth is coming down, trend-wise, but opinions differ widely over how much and how quickly.

In a recent paper, former US Treasury Secretary Larry Summers and his co-author Lant Pritchett argue that, based on global experience, it is more likely for China to “revert to the mean” of 2 per cent GDP growth than to keep growing at relatively high rates.

It makes sense to look at history as a guide to the future. But, what is the right history to look at? Read more

By Jonathan Fenby, Trusted Sources

Reports of the latest Chinese Communist Party Plenum have made much of a drive by the leadership in Beijing to improve “the rule of law”. If that were the case, it would represent a major positive step in the process of change promised by the previous Plenum in November 2013. Establishing a strong, independent legal system is an essential step in enhancing the rights of individuals and providing a level playing field for companies and investors.

Boosting hopes that this may be on the leadership’s agenda, official Chinese media, along with some investment bank analysts and foreign media commentators, have hailed the Plenum as, in the words of one of the former, “a blueprint for the law of law”. This is playing with words. Read more

By Freha Amjad

If you are looking to ride a career helicopter into the rarefied echelons of those who earn more than $250,000 a year – then consider becoming an expat working in Asia.

Such a course is suggested by the findings of the latest HSBC Expat Explorer report, which is based on a YouGov survey of 9,288 expats worldwide. Asia is home to the highest earning expats, who are almost three times more likely to earn over $250,000 a year than their counterparts in Europe. Read more

There may be some light at the end of the tunnel for China’s beleaguered housing market, according to a survey of real estate developers by China Confidential. Home sales growth in October was the highest in 18 months, while a separate survey of urban consumers shows home buying sentiment at a multi-year high.

China Confidential’s monthly survey of 300 real estate developers across 40 cities, showed a sharp rebound in sales volumes in October, with companies reporting the biggest month-on-month increase since March 2013. Developers reported an even larger expansion in sales inquiries, suggesting that many potential home-buyers remain on the side-lines. Read more

By Matt Gamser and Paul Lee

A new wave of financing innovations is democratising access to capital, especially for those most vulnerable among small, medium and micro-enterprises (SMMEs). Are governments and large financial institutions ready to embrace these innovations and enable the necessary regulatory reforms to support the growth of entrepreneurs across Asia?

Raising capital has always been one of the greatest challenges for the growth and sustainability of SMMEs. The International Finance Corporation estimates that the total unmet need for credit by SMMEs globally ranges from US$2.1tn to US$2.5tn. In East Asia alone, the credit gap is a massive US$900bn to US$1.1tn. Read more

Unofficial readings on China’s industrial activity released on Thursday add to a sense that the underlying economic vibrancy of the world’s second largest economy may have continued its ebbing trend into October.

This may surprise those who bought into the notion that industrial output rebounded strongly in September, rising to 8 per cent year on year, up from 6.9 per cent in August. In fact, though, that September “rebound” was largely the result of a big statistical base effect, according to China Confidential research.

Similarly, the announcement on Thursday of a pick up in HSBC/Markit’s manufacturing Purchasing Manager’s Index (PMI) to 50.4 in October so far – up from 50.2 in September – is misleading. In fact, readings on manufacturing output and new orders – the key measures of industrial vibrancy – revealed markedly weaker trends. Read more

In a private meeting with the US Ambassador to China in 2007, provincial Communist Party secretary Li Keqiang described his country’s GDP figures as “man-made” and unreliable.

To get a good idea of what was happening to the economy in his province of Liaoning, Li said he preferred to focus on three alternative indicators: electricity consumption, volume of rail cargo and the amount of loans disbursed.

All other figures, and especially GDP statistics, were “for reference only”, Li told the Ambassador, with a broad smile on his face. Read more

GDP growth. Third-quarter growth could be the slowest since the depths of the global financial crisis, when China reported 6.6 per cent growth in the first quarter of 2009.

As if to add substance to complaints from emerging market policymakers about being ignored, a matter mainly affecting middle-income countries became the subject of close global attention only when it emerged as a bone of contention between the US and Europe.

The snappily-titled “investor-state dispute settlement” (ISDS) process, where companies have the right to sue governments for disadvantaging their businesses, has been the subject of deep controversy for years. But since the most vocal discontents were nations like Argentina and Venezuela that complain about more or less everything, it took well-organised campaigning and official German opposition to an ISDS chapter in the US-EU Transatlantic Trade and Investment Partnership (TTIP) to make it a central concern. Read more

A reported export surge in September is failing to dispel the gloom suffusing forecasts for China’s third quarter GDP growth, which several economists predict will slump to a five-year low.

One problem lies with the export numbers themselves, which raise suspicions that over-invoicing may once again be artificially inflating export statistics as Chinese smuggle hot money into the mainland from Hong Kong to take advantage of an appreciating renminbi. Read more

By George Magnus

Serial disappointments in emerging country growth rates since 2011 has forced the International Monetary Fund (IMF) to cut its five-year-ahead forecasts for a group of 153 emerging and low-income developing countries on six occasions since late 2011 (see chart).

However, in its latest World Economic Outlook, the IMF again assumes that current disappointments will give way to restored equilibrium growth rates over the next five years. But what if there is no equilibrium and emerging market (EM) growth continues to disappoint? Read more